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Virgin Blue has welcomed the draft decision issued by the National Competition Council recommending that the Airside Service at Sydney Airport be declared under Part IIIA of the Trade Practices Act 1974.

The low fare carrier believes that the draft decision supports Virgin Blue’s concern that Sydney Airports Corporation Limited (SACL) has a substantial degree of market power over the use of the runways and taxiways at Sydney Airport, and that SACL is able to use this power to detrimentally affect competition in the aviation industry.

Virgin Blue put forward the view that SACL’s recent decision to move from aircraft weight based charges to per passenger charges for the runways and taxiways at Sydney Airport, is an example of a monopoly using its market power to impose changes which will negatively affect competition and raise the cost of flying for the travelling public.

The proposed changes would result in a 50% increase in take-off and landing charges for Virgin Blue while not increasing Qantas’ charges by any significant amount (and potentially even reducing them).

If the Airside Service is declared under Part IIIA of the Trade Practices Act 1974, then Virgin Blue will be able to request that the Australian Competition and Consumer Commission decide access disputes with the airport over take-off and landing charges, rather than being forced to accept whatever terms and conditions of access SACL decides are in the best interests of its shareholders.

The airline is calling on SACL not to implement today’s price increase in light of the NCC’s draft determination. However, if they ignore this call, Virgin Blue has chosen to resist passing on the additional cost at this time, while it assesses the likelihood of retrospectively recouping these unnecessary fees if the airport is declared.

Virgin Blue Head of Communications and Strategy, David Huttner said, “While many airports have taken a partnership approach in their negotiations with us, there are a few who believe their monopoly power can dictate whatever charges they want to the travelling public. Clearly, regulation by the ACCC is needed to ensure that air travellers are protected against monopoly pricing.”

He continued, “While we have been able to negotiate in good faith with most major airports in Australia, the most recent shift in pricing at Sydney affirmed our view that we have no alternative other than to seek NCC Declaration.”

Virgin Blue notes that the recommendation released today is a draft, and will be making additional submissions to the Council in support of this draft. The airline expects the Council to issue its final recommendation in August.

Following the final recommendation, Senator Campbell will then make the decision whether or not to declare the Airside Service at Sydney Airport. Virgin Blue strongly believes that Declaration will promote competition in the aviation industry to the benefit of all of the travelling public, by allowing airlines recourse to an impartial umpire to decide disputes over the manner in which SACL exercises its market power at Sydney Airport.

Key points

Sydney Airport has the ability and incentive to use its market power by increasing landing charges above competitive levels. Whilst Sydney Airport has an interest in increasing non-aeronautical revenue and is subject to the threat of re-regulation, this does not effectively constrain Sydney Airport from using its market power by increasing landing charges.(Refer to draft decision – Paragraph 6.209-6.217)

An increase in landing charges will ultimately lead to an increase in airfares for Virgin Blue customers. This will impact on the ability of Virgin Blue to offer widely available affordable airfares. This may cause a fall in the number of passengers and ultimately a decrease in the number of services offered on Sydney routes. The overall result would be a lessening of competition in the market for domestic air services and less choice for consumers. (Refer to draft decision - Paragraph 6.145)

A low cost carrier such as Virgin Blue would be disproportionately disadvantaged by Sydney Airport using its market power by increasing landing charges because a higher proportion of its fares are made up of landing charges and it carries a higher proportion of price sensitive passengers.(Refer to draft decision – Paragraph 6.145)